Israel and the United States have wasted 18 months discussing the marginal issue of settlement building rather than focusing on a comprehensive peace plan to resolve the conflict, former prime minister Ehud Olmert said today in a rare political intervention.

"I regret very much that the US and other parties invested so much in marginal issues. The substance is what counts. We have wasted a year and a half in discussing whether to have a new building here or a new building there."

What mattered, he said, was "a comprehensive peace plan that can resolve the conflict." Speaking to the foreign press, Olmert said he would have agreed to US demands for a fresh temporary settlement freeze – the issue that has caused gridlock in direct negotiations – despite having opposed the initial moratorium.

"I wouldn't have agreed to a 10-month freeze," he said. But "if someone says that he agrees to 10 months of freezing and the president of the mightiest nation on earth and friendliest nation to Israel comes to you and says 'please give me two [more] months, only two months' ... I would say 'president, why two? Why not three? Take three!'''

Since the freeze ended in September, the US has offered a range of inducements to persuade Israel to extend the moratorium.

The prime minister, Binyamin Netanyahu, is insisting on written assurances before putting the deal to his security cabinet for a vote.

Olmert, who left office last year after facing corruption charges, said he had tried to persuade President Barack Obama's administration to adopt as a starting point a comprehensive proposal he had put to the Palestinians four years ago.

The Palestinians never formally responded to the offer, he said. Their failure to accept it was a "historic mistake of the highest order that they will live to regret for a long time".

The plan – which was not made public at the time but whose broad outline has since become known – involved:

• A two-state solution based on the 1967 borders with agreed land swaps in exchange for Israel keeping the large settlement blocs in the West Bank

• The division of Jerusalem

• The holy sites to be governed jointly by Saudi Arabia, Jordan, Palestine, Israel and the US

• A symbolic number of Palestinian refugees to be allowed to return to what is now Israel

• Compensation for Palestinians and Jews displaced as a result of wars between Israel and Arab countries

• A demilitarised Palestinian state.

Despite advocating unilateral withdrawal from the West Bank in his election campaign, Olmert said he wanted a negotiated agreement – "and we were close enough not to give up on this".

He said the Palestinians had proved they could change, citing the current "relatively efficient" government led by prime minister Salam Fayyad and an "impressive" economy.

In a veiled criticism of Netanyahu, he said a peace agreement "will require painful and fundamental concessions but when you are in a leadership position you have to take decisions and assume responsibility and face the whole world and face your conscience - that's the most difficult.

"Do you want to be prime minister for 10, 15, 20 years - and then what? Or do you want to do something that will change the lives of your grandchildren?"